Financial literacy is important. No one has ever disputed this statement. Financial literacy ranks high as one of the most important life skills a person can possess. However, from preschool to tertiary there is no subject called Financial Literacy, Financial Intelligence, Personal Financial Management or similar. Not in Botswana anyway.
This means it is up to us, parents, to teach and equip our children with the financial skills they need to ensure they grow up to become financially responsible and intelligent adults.
Parents often tell me they don’t know where to start or even how to teach small children about money management. Teaching kids about money management can be fun and most will be surprised how eager kids are to learn about money. And don’t underestimate your child’s capacity to learn. You’ll be surprised by how quickly they grasp concepts.
There are many money lessons to teach your children to get them to be money smart. For those parents who are not sure where to begin, here are three money management concepts to help you get started.
Three Important Money Management Concepts
1. Differentiating Between Needs And Wants
If you want your child to grow up to be money smart it would be worthwhile to teach them the difference between needs and wants. Admittedly, most adults could use this lesson also.
A need is something we must have to stay alive – important for our survival.
A want is something that is nice to have – not important for our survival.
Knowing the difference between a need and a want and emphasizing what needs have to be taken care of before indulging in wants is the first step to raising a money smart child. Knowing the difference means your child will grow up to be an adult who knows, for example, that they have to pay rent/mortgage before they go on holiday.
Make a game out of this lesson by asking your child to identify things in the house as a need or a want – you can do it on paper or verbally. Be prepared for some surprises though. All the kids I have played this game with in my programmes insist that DSTV and Wi-Fi are a need.
2. Instant Gratification vs Delayed Gratification
Another concept you want to teach your child is practising delayed gratification by curbing the desire for instant gratification.
Instant gratification means wanting to satisfy your desire right now – you don’t want to wait for later.
Delayed gratification means you sacrifice satisfying yourself right now so you can satisfy yourself with something better later. Or when you can afford it.
Example: Your child has P50. He/she wants to spend the money on a toy at Crazy Store. You know your child has also been talking about getting a game that costs P150. Encourage them to save the P50 for the game which you know they want more. You could put in place a system of matching your child’s savings. This is a quick way of teaching there is a reward to be had from exercising patience.
Teaching delayed gratification will go a long way in helping you raise a child who will be a money smart adult. Think about it, most adults are in debt for the simple reason that most struggle with waiting until they can afford something. They would rather get into debt to satisfy their immediate desires.
3. The Importance Of Saving And Investing
Saving and investing is important for many reasons – financial freedom, peace of mind, avoiding debt, etc. It is however important to start teaching children the importance of saving and investing from a young age. If as a parent you do not encourage your child to save some of their pocket change now then it is going to be a difficult habit for them to develop when they are grown up. When have to save for big expenses and retirement. Start teaching your child that if they have P10 they should save a portion, say P3. This teaches your child two important things;
i. You don’t spend everything that you earn (don’t gobble up everything in one go), and
ii. Saving helps you afford big things you cannot afford to buy now.
Encourage your child to save a portion of their ‘earned’ money in a piggy bank and open a savings account that they can deposit money into. The best way to get your child’s buy-in on the idea of saving is to get them to save for something they want. If they know what they are saving for they will be excited by the process.
Basically, there is no ‘money-smart fairy’ who comes and waves a magic wand to make us money-smart. To be good with money management we have to be intentional and seek out the lessons. As a parent one of the biggest gifts you can give your child is to empower them with good money management skills so they grow up with the habits already ingrained in them. So pick one of the concepts above and start teaching your child today. If you also need a little help here is a post I did on How To Start Saving For Christmas.
I have also partnered with Bifm to offer a financial intelligence programme for kids called Kids Money Camp on 15th September 2018. If your child is in standard 5, 6, or 7 and you would like to give them a head-start on being money smart, register them by contacting 72 303 444 or firstname.lastname@example.org